For some years now, India has remained at the top of all countries that receive remittances in US dollars. A lot of these funds flow from Indian-Americans and Indians who reside in the United States. The problem is that a lot of them are not in compliance with respect to their US international tax obligations that arise as a result of these Indian US dollar remittances.
Indian US Dollar Remittances: India Has Been the Top Recipient
For many years now, India has been one of the top countries in turn of US dollar remittances; lately it has occupied the number one spot. For example, in 2018, India received about $78.6 billion from overseas; China was a distant with only $67.4 billion followed by Mexico ($35.7 billion), the Philippines ($33.8 billion) and Egypt ($28.9 billion).
One of the biggest (if not the biggest) sources of these Indian US dollar remittances has been the United States. In fact, according to the World Bank, one of the reasons why Indian US dollar remittances were so high in 2018 was a better economic performance of the US economy. Hence, we can safely conclude that a large number of Indian-Americans and Indians who reside in the United States send a large portion of their US earnings back to India.
Indian US Dollar Remittances: US International Tax Compliance Issues
The biggest problem with Indian US dollar remittances is their potential for triggering various US international tax compliance requirements, because these remittances are made by US tax residents. Oftentimes, the repatriated funds are sitting in Indian bank accounts or they are invested in Indian stocks, bonds, mutual funds and structured products. Moreover, some of these funds are used to purchase real estate which is rented out to third parties. Still other funds are used to finance business ventures in India.
Such usage of repatriated funds may result in the obligation not only to report Indian income in the United States , but also to file numerous US information returns such as: Report of Foreign Bank and Financial Accounts (FinCEN Form 114 better known as FBAR), Forms 8938, 8621, 5471 and others. Failure to report foreign income and file these information returns may result in the imposition of draconian IRS penalties and even a criminal prosecution.
Indian US Dollar Remittances: Unawareness Among Indians of US Tax Compliance Requirements
The high potential of Indian US dollar remittances to give rise to US tax compliance issues is combined with a widespread unawareness of these issues among Indians and Indian-Americans. Many of these taxpayers are not even aware of the fact that they are considered US tax residents. Others simply have never heard of the requirement to disclose foreign accounts and other foreign assets in the United States. Still others cling to erroneous ideas and various incorrect myths concerning US tax system.
The rise of various US tax compliance requirements as a result of remittances of funds to India and the widespread ignorance of these requirements among Indians is a bad combination, because it creates the potential for the imposition of the aforementioned draconian IRS penalties on Indians who are not even conscious of the fact that they need to report their worldwide income.
Contact Sherayzen Law Office for Professional Help With US International Tax Compliance and Offshore Voluntary Disclosures Concerning Remittances of US Earnings to India
If you are an Indian who resides in the United States and you sent part of your US earnings to India, contact Sherayzen Law Office for professional help. We have successfully helped hundreds of Indians and Indian-Americans to resolve their US international tax compliance issues, including conducting offshore voluntary disclosures (such as Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures) with respect to past US tax noncompliance. We can help you!